Apple’s Effective, Well-Funded Infringement Rocks the Competitive Landscape | Kidon IP


Apple’s long-term campaign to avoid paying the FRAND SEP licensing fee continues unabated. In what has become a modus operandi, each time Apple’s license with one of SEP’s major licensors – Ericsson, Nokia, Samsung, Motorola, InterDigital, Qualcomm – comes up for renewal, a world war breaks out, and then after having forced SEP licensors to pay millions in legal fees, Apple settles for unknowns, usually after being found by a court or the ITC to be a “reluctant” technology user who failed to negotiate in good faith.

In what appears to be the unintended trend of the day, Apple’s decision not to renew its license with Ericsson will – if the current litigation landscape remains the same – another example of its effective and wasteful infringement practices. Previously I illustrated how much MS litigation, the sport of kings, costs, and found, for example, that Apple’s similarly structured litigation with Nokia (between 2009 and 2011) cost Apple more than 46 million euros in legal fees. This number does not include the time and opportunity costs incurred by Apple in pursuing the dispute. Similar to Nokia and Qualcomm, Ericsson has a sophisticated and successful approach to MS litigation, as exemplified by its prior fights and licensing with Apple in 2015 and 2008. ‘Apple won’t be FRAND compliant and Apple will eventually pay Ericsson a lot of money and get a new SEP license.

So why is Apple fighting so hard before renewing its SEP licenses? Two answers must be ruled out from the outset. Apple, which just reported another quarter of huge profits, isn’t worried about the money and the prices of its devices show it’s certainly not interested in passing the savings on to consumers.

Ericsson’s license applications were rightly described by 9to 5Mac as “a sum of money [Apple] could pay with loose change found on the back of the sofa in Tim Cook’s office. It is not an empty metaphor. On a quarterly basis, Apple – America’s top $3 trillion company – earns what Ericsson demands in about thirteen and a half hours (and most likely much less).

Let’s do the math: in the third quarter of 2021, Apple sold just under fifty million phones. The average sale price for Apple iPhones in 2021 was well north of $800. In the same quarter, Apple’s overall revenue was just over $80 billion, with some $40 billion coming from iPhone sales (50 million units times $800 ASP). Under oath, Apple admitted its total fee was less than $15/device. This turns out to be a total SEP royalty charge of $750 million. As for Ericsson, even if Apple pays Ericsson’s maximum rate of $5 for each multimode 5G device, Apple owes Ericsson $250 million for the third quarter of 2021. To be clear, $250 million is probably an upper limit – licensors usually give volume discounts and not all iPhones are 5G and non-5G prices are lower. Since there are 2190 hours in a fiscal quarter and Apple earned at least $40 billion from iPhone sales, it basically earned $18.5 million per hour of that quarter from iPhone sales. iPhone. Based on this calculation, Apple obtained Ericsson’s requested royalty payment in thirteen hours and thirty-one minutes and their total royalty charge in forty hours and thirty-three minutes. All for the technology that puts the “phone” in the iPhone, otherwise it’s an overpriced paperweight.

Also, as CNET correctly noted in the context of Apple’s settlement with Qualcomm, any savings Apple may realize in its licensing will never be passed on to consumers. ASPs for Apple devices continue to grow by double digit percentages, bolstered by Apple’s “gateway” strategy that app developers get a taste of. If the last years of its products are to be believed, Apple does not use these savings to develop innovative products. Rather, Apple seems to just be hoarding money — and doesn’t even bother to give its shareholders a sizable dividend over its peers.

So why is Apple resisting and continuing to make “implausible” arguments that its SEP royalties must be lower? In addition to enriching its key law firms, I think the answer lies in the desire to make it more difficult for Apple’s smaller competitors to emerge. Why its smaller competitors?

Simple. Apple is using its financial muscle to try to gradually reduce its licensing costs while hoping to show the world how expensive it is to get “preferential treatment” and thus deter smaller competitors from emerging. Apple’s current major competitors on the global stage are Samsung or various Chinese companies. Apple probably feels like it’s dealt with Samsung for now. As for the Chinese players (Vivo, Huawei, Oppo, Xiaomi), Apple probably recognizes that they need a different approach for reasons I’ve discussed elsewhere. Additionally, Tim Cook has signed a now-disclosed agreement with China’s ruling Communist Party, proving once again that the company has no moral compass.

Given the increasingly likely bans on Chinese telecom equipment and vendors, Apple (at least in the West) is probably far more concerned about the hundreds of non-Chinese telecom companies trying to enter the market. Although it is very difficult to predict the next disruptive technology or the next “iPhone killer” (see, for example), Apple seems to be doing its best to prepare for its emergence by hoarding money and pulling leveraged its power to gain a huge supply and licensing advantage over its smaller competitors. We could have, through these associations that give voice to small technological companies, say something, oh wait… astroturfing.

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